Dalmia Bharat Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Positive

Capacity expansion and RE growth on track

Dalmia Bharat Ltd. reported operating revenue of ₹31,810 million in Q3FY25, which was up 3% compared to the previous quarter but down 11.7% from the same period last year, mainly due to lower cement prices. The company’s EBITDA stood at ₹5,110 million, up 17.7% QoQ but down 34.4% YoY, with its EBITDA margin improving to 16.1% from 14.1% in the previous quarter but lower than 21.6% a year ago. EBITDA per ton declined to ₹765 from ₹917 in Q2FY25 and ₹1,140 in Q3FY24.

Freight costs increased slightly (up 1.6% QoQ and 0.7% YoY) as the company had to supply cement to the central region from its eastern plant after discontinuing the JP tolling arrangement. However, fuel costs per ton decreased (down 0.6% QoQ and 8.8% YoY) due to a higher share of energy from waste heat recovery systems (WHRS).

The company’s profit for the quarter was ₹660 million, a 34.7% improvement QoQ but a 75.2% drop YoY. Cement volumes fell 2% YoY to 6.7 MT, remaining flat compared to the previous quarter but up 3.7% YoY. Financially, the company maintained strength with a net debt-to-EBITDA ratio of 0.55x.

During the quarter, Dalmia Bharat expanded its clinker capacity by completing debottlenecking projects at its Rajgangpur (Odisha) and Kadapa (Andhra Pradesh) plants, adding 0.9 MT capacity, bringing the total clinker capacity to 23.5 MT. The company also commissioned a 4 MW captive solar power plant in Medinipur, West Bengal, and 46 MW of renewable energy (RE) capacity under Group Captive, increasing its total operational RE capacity to 252 MW. It aims to expand this capacity further to 267 MW by the end of FY25.

Key Concall Highlights

Government CapEx Growth: The government’s capital expenditure is expected to increase by about 20% YoY during December-March, driven by strong construction activities in the seasonally active quarter. Cement demand is projected to grow 6-7% YoY in Q4FY25, resulting in full-year growth of 3-4%.
Cement Capacity Expansion: The company is on track to achieve a cement production capacity of 49.5 million tonnes by FY25-end and plans to announce Phase 2 expansion within six months to reach 75 million tonnes by FY28.
Renewable Energy Initiatives: The company has signed long-term agreements for 299 MW of renewable power under group captive arrangements and expects to have 267 MW operational, including 57 MW from group captive setups, by FY25-end.
Renewable Energy Usage: Renewable energy is anticipated to contribute 40-45% of the company’s total power consumption by FY25-end.
Clinker and Grinding Unit Updates: Clinker capacity increased to 23.5 million tonnes following upgrades at Kadapa and Rajgangpur plants. Additionally, a 2.4 million tonnes grinding unit in the Northeast and a 0.5 million tonne unit in Bihar are nearing commissioning.
Improved Trade and Product Mix: Trade sales rose to 66%, premium product share increased to 24.2% from 22.4% in the previous quarter, and the blended cement ratio improved to 85.1% from 82.7%.
Market Competition in South India: Competitive intensity in South India is expected to rise as struggling companies are acquired by stronger players with better management, branding, and finances, potentially leading to pricing pressures in the region.

Valuation and Outlook

Dalmia showed some recovery on a quarterly basis but performed weaker compared to last year. Improvements came from lower raw material, power, and fuel costs. However, these were offset by weaker cement prices and lower demand. Management expects fuel costs to drop slightly, helped by a higher use of power from waste heat recovery systems (WHRS).

With debottlenecking completed at its plants, the company remains committed to achieving 100% renewable energy by 2030. Cement volumes are expected to improve in Q4FY25, driven by increased government spending on infrastructure and industry growth estimated at 6-7%.

The company plans to increase its cement capacity from 46.6 MTPA to 49.5 MTPA by FY25-end and is preparing for the next expansion phase, which may increase debt levels. While efforts are being made to cut costs, freight expenses have risen due to supply adjustments from eastern plants to the central market after ending the JP tolling arrangement and higher clinker movement costs during plant upgrades.

Overall, profitability is expected to improve with volume recovery, price hikes in December 2024, and tighter control over costs.